"A variable rate moves a little, up and down." Not really.
The phrase "variable rate" sounds gentle, like a savings-account APR that nudges up or down by a quarter point. That is not what a variable-rate energy plan does.
A residential variable rate is a contract that lets the supplier reset your cents-per-kWh (or per-therm) every month, usually with no statutory cap on how much it can move. When the wholesale market is calm, the rate may drift by 0.5 to 1 c/kWh month-to-month. When the wholesale market spikes (cold snap, heat dome, gas shortage, transmission outage), the rate spikes with it. The same contract that produced a $180 bill in October produces a $700 bill in February.
This is not a hypothetical. In the January 2014 polar vortex, variable customers in PA, OH, NY and IL received February bills of 3 to 5x normal. In the February 2021 ERCOT freeze (Winter Storm Uri), wholesale-index customers in Texas received bills of $5,000 to $15,000 for a single week. In the 2022 winter gas crunch, variable gas customers in NY and MA paid double on the same usage. Each was the contract doing what it said it could.
State regulators have noticed. New York effectively retired variable mass-market products in December 2023 via the NYPSC Reset Order. Illinois ICC has been tightening variable ARES marketing rules since 2024. Texas bars indexed mass-market products entirely. In every state that still allows variable products, you should treat them as exotic financial instruments, not as a normal household utility plan.
Three structurally different "variable" products.
"Variable" is an umbrella that covers three quite different contract types. Each one transmits wholesale volatility to your bill differently.
Discretionary variable
The supplier sets the rate each month based on its own cost-of-service calculation. There is no formula tied to a published index. The supplier is required to give monthly rate notice in most states, but the rate itself is at the supplier's discretion. This is the dominant residential variable product in PA, OH, MA and NJ.
Wholesale-indexed
The rate is mechanically tied to a published wholesale index, usually the day-ahead LMP at a defined trading hub plus a small adder. No supplier discretion, no smoothing. When ERCOT day-ahead hits $5,000/MWh, the retail rate hits $5/kWh. Effectively banned for mass market in Texas after Uri; rare elsewhere.
Introductory / teaser then variable
A fixed promotional rate for 1 to 3 months (often below the utility default), then auto-reset to discretionary variable at the supplier's then-current rate. The reset is the entire business model. The supplier loses money in the teaser period and recovers it (with margin) in the reset period, betting that customers will not actively monitor their bill.
! The one detail that matters most
None of these three products carries a cap by default. The supplier is free to set the rate at whatever the cost-of-service or index calculation produces. A small number of suppliers offer capped variable products (rate can move freely up to a stated maximum, often 1.5x the utility default), but these are uncommon and you must ask explicitly. Uncapped variable is the default; capped is the exception.
Where variable-rate mass-market products still exist.
Status as of May 2026. Verify the latest from your state PUC/PSC; rules continue to tighten.
| State | Variable status | 2023-2026 regulatory action | Where they still exist |
|---|---|---|---|
| New York | Effectively retired (mass market) | NYPSC Reset Order, Dec 2023 | Only with written savings guarantee vs default |
| Illinois | Restricted, ICC tightening | ICC consumer-protection orders 2024-2025 | Permitted with stricter disclosure; CUB recommends aggregation instead |
| Texas (ERCOT) | Indexed banned, variable rare | PUCT post-Uri orders, Feb 2021 onwards | Fixed-rate is the dominant product; month-to-month variable exists but rare |
| Pennsylvania | Allowed with conspicuous notice | PaPUC tightened disclosure 2015 onwards; AG enforcement | Permitted; rate must be on customer bill, monthly notice required |
| Ohio | Allowed with disclosure | PUCO monthly rate-change notice rule | Permitted; suppliers must give notice if rate moves above stated threshold |
| Massachusetts | Allowed, AG scrutiny ongoing | MA AG annual reports flag variable underperformance vs default | Permitted; DPU oversight tightening |
| New Jersey | Allowed with disclosure | BPU disclosure rules updated 2024 | Permitted; rate-change notice required |
| Maryland | Allowed with disclosure | MD PSC consumer-bulletin warnings ongoing | Permitted; supplier list filterable on PSC site |
| Connecticut | Allowed, PURA tight oversight | PURA periodic supplier audits | Permitted; supplier complaint stats on PURA site |
| DC, DE, ME, NH, RI | Allowed with state-specific rules | Smaller markets, fewer suppliers | Permitted; verify with state PUC before signing |
The pattern. Every state that has run a multi-year review of variable mass-market performance has reached the same conclusion: variable customers pay more on average than utility default customers, sometimes substantially more. NY and IL acted on that finding through different mechanisms (Reset Order vs ICC marketing restrictions). The other states will likely follow over the next 2 to 4 years. If you are evaluating a variable product in May 2026, assume the regulatory trend is against you.
How a four-day cold snap becomes a $700 February bill.
Four mechanisms link a wholesale spike to your variable retail bill. Each one is documented in post-event PUC investigations.
A Spot price escalation
Cold snap pushes electric demand 20 to 30% above normal at the same time gas-fired plants struggle to source fuel. The next-most-expensive plant in the dispatch stack is a peaker bidding 10 to 50x the normal price. Under marginal pricing, every cleared unit gets that price. ERCOT spot hit $9,000/MWh during Uri; PJM hit $1,800/MWh during the 2014 polar vortex.
B Supplier cost-of-service spikes
A supplier serving variable customers must buy the power to serve them in the spot or day-ahead market each day. When wholesale spikes, the supplier's cost-of-service for that month spikes. Discretionary variable contracts then let the supplier reset the customer rate to reflect that cost, often the very next billing cycle.
C No smoothing, no cap
Utility default rates are smoothed through laddered procurement auctions (monthly in NY, quarterly in OH/IL, semi-annual in PA). A discretionary variable contract has no such smoothing. The rate moves directly with the supplier's monthly cost, with no cap to limit the move.
D Delay between spike and bill
The wholesale event happens in week 1. The supplier's billing cycle closes in week 4. The customer receives the bill in week 6. By the time the household realises the rate has reset to a punitive level, they have already consumed a full month of high-priced electricity. There is no real-time way to react.
The take-away: variable plans are designed to transmit wholesale risk to the customer. That is the product, not a flaw in the product. If you do not have the financial cushion to absorb a 3x bill spike for one month, you should not be on a variable plan.
How New York retired variable mass-market products in one order.
The NYPSC Reset Order (Case 12-M-0476, finalised December 2023) is the most aggressive state-level action against variable products in US history. Four numbers explain why.
Compliant variable products
Mass-market ESCO products must be fixed-price for the term or guaranteed-savings vs default. Variable without a savings guarantee is not compliant.
Of evidence collected
NYPSC published ESCO Value Reports from 2016 onwards, repeatedly showing variable customers paid more than default customers.
Order took effect
Suppliers had to transition existing variable customers to either fixed or guaranteed-savings products through 2024 and 2025.
Apr 2026 AG settlement
NY Attorney General settlement with multiple ESCOs over Reset-Order non-compliance, including variable-rate marketing violations.
Why other states are likely to follow
- A The evidence base is consistent across states. NY, IL CUB, MA AG and PA Office of Consumer Advocate have each independently found that variable mass-market customers pay more on average than default. The findings are not state-specific.
- B The legal mechanism is portable. Reset Order is grounded in PSC authority over ESCO conduct, an authority every retail-choice state already has. Any state PUC could replicate the rule under existing statute.
- C Political cover is now built in. Each wholesale-spike event (2014, 2021, 2022) produces a fresh wave of complaints; each Reset-Order-style action draws bipartisan support. The 2026/2027 PJM auction outcome is likely to trigger the next state action in OH, PA or MD.
Why suppliers offer variable plans at all.
A variable mass-market plan is structurally bad for most customers. So why do suppliers keep offering them? Four structural reasons.
The teaser-reset margin is enormous
A 1-month teaser at 6 c/kWh that resets to 14 c/kWh produces an 8 c/kWh margin in month 2 onwards, against a wholesale cost of perhaps 5 c/kWh. The supplier loses money in month 1, then captures 9 c/kWh gross margin per kWh for as long as the customer stays. The average mass-market variable customer stays 14 to 24 months. The math is excellent for the supplier.
No hedging cost means higher operating margin
A fixed-rate plan obligates the supplier to buy forward contracts to hedge the term. That costs money. A variable plan transfers all hedging risk to the customer, so the supplier carries near-zero balance-sheet risk per variable customer. Variable book is cheaper to operate, even if average revenue per customer is similar.
Acquisition channels reward enrollment volume, not retention
Door-to-door sales agents and outbound call centres are paid per enrolment, not per customer-year. A variable teaser is easy to sell ("save 30% in your first month"). The agent collects the commission, the supplier collects the reset margin, the customer realises in month 6 that the rate has tripled. By then the acquisition channel has moved on.
Most customers do not actively shop after enrollment
State PUC studies consistently show that 60 to 80% of mass-market customers who switch suppliers do not switch again for at least 18 months, regardless of their actual rate performance. The supplier counts on this inertia. A variable customer who does not check their rate is a customer paying the reset margin forever.
The take-away: variable plans are not a malfunction of the market. They are the market's response to a profitable structural opportunity. The regulatory crackdown is what finally closes that opportunity, state by state, as the evidence accumulates.
Six steps if you are already on, or being pitched, a variable plan.
Pull last 12 months of bills
Look at the supply rate (c/kWh or per-therm) on each bill. If the rate has moved up 20% or more from your first month, you are in the reset phase of a teaser product. Switch immediately.
Compare to your utility default
Pull your utility's current Price to Compare (PTC) or default supply rate. If your variable rate is above it, you are paying for the privilege of bearing wholesale risk. The default is almost always the safer floor.
Ask: "What is the maximum the rate can become next month?"
If the answer is anything other than a specific dollar number, the plan has no cap. Walk away. Capped variable plans exist but are rare; uncapped is the default and is what produces bill shock.
Switch to fixed-rate or back to default
Most variable contracts can be cancelled at any time with no ETF (it is part of the bargain for "variable"). Switch to a 12-month fixed-rate plan, or simply return to your utility's default service. Both protect you from the next wholesale spike.
File a complaint if marketing was misleading
Every state PUC accepts consumer complaints online (PaPUC, NYPSC, ICC, PUCT, PUCO, etc.). If the salesperson did not disclose the reset or the lack of cap, file. PA, NY and IL have pursued enforcement actions on the basis of complaint volume.
In Illinois, look at municipal aggregation
IL municipal aggregation programs negotiate a single rate on behalf of all households in a town, typically beating both default and individual ARES offers. CUB recommends aggregation over individual ARES enrollment for most households.
Common questions about variable-rate energy plans.
It is a retail contract where your cents-per-kWh (or per-therm) can change every month at the supplier's discretion. The supplier may tie the rate to a wholesale index, an internal cost-of-service calculation, or simply set it month-to-month with notice. There is usually no cap. When wholesale prices spike (cold snap, heat dome, gas shortage), the rate spikes with them and you receive a bill of 2 to 5x normal with little warning.
Yes in most retail-choice states, but with growing restrictions. New York effectively retired variable mass-market products in December 2023 via the NYPSC Reset Order. Illinois restricted variable ARES marketing in 2024-2025 through ICC consumer-protection orders. Texas effectively bars wholesale-index mass-market products after Winter Storm Uri (Feb 2021). Pennsylvania, Ohio, Massachusetts, New Jersey, Maryland and Connecticut still allow variable products, with state-specific disclosure rules. Source: NYPSC Reset Order, ICC electric shopping.
The historical worst-case is brutal. Winter Storm Uri (Feb 2021): ERCOT wholesale-index customers received bills of $5,000 to $15,000 for a single week. Polar vortex (Jan 2014): PA, OH, IL variable customers received February bills of $700 to $1,200 against $200 baselines. Winter 2022 gas crunch: NY, MA gas variable customers saw January-March bills double. In each case the wholesale market did what the contract said it could, and the retail rate followed.
A variable rate is set by the supplier each month, with no required link to any external index. A wholesale-index rate is mechanically tied to a published wholesale price, usually the day-ahead or real-time LMP at a defined trading hub. Index plans transmit wholesale volatility directly, with no smoothing. Both can spike, but indexed plans spike instantly and without supplier discretion. Indexed mass-market products were effectively retired in Texas after Uri.
A common enrollment tactic: the supplier offers a low rate (often below the utility default) for 1 to 3 months, then the rate resets to "market" or "supplier's then-current variable rate". The reset rate is often 30 to 80% above the teaser. The supplier earns acquisition margin in the reset months because most customers do not actively monitor their bill after enrollment. Watch for the words "introductory rate", "first month special", "promotional rate", they are the giveaway.
Both states ran multi-year reviews of customer outcomes on variable products and found that variable customers paid more on average than utility default customers, often substantially more. New York found this in successive ESCO Value Reports starting in 2016. Illinois CUB published similar findings. The conclusion: variable mass-market products do not produce the consumer benefit retail choice was supposed to deliver, and they expose households to bill-shock risk. NY responded with the Reset Order (Dec 2023); IL is following with ICC marketing restrictions.
For most households, no. The hypothetical case is a household with significant flexibility to shift load to off-peak hours, a smart meter that prices each hour, and an explicit appetite for wholesale risk. Even then, a time-of-use plan from the utility or a structured demand-response program is almost always a better fit than a mass-market variable plan. For ordinary residential customers, a 12-month fixed plan or the utility default is the right starting point in every state.
"What is the maximum the rate can become next month?" If the salesperson cannot answer with a specific number, the plan has no cap and you should walk away. A capped variable plan (some PA and OH suppliers offer them) is structurally safer. An uncapped variable plan passes scarcity through to you with no limit, which is what produces $15,000 bills.
Keep learning about US retail energy plans
Fixed-rate energy plans
How a fixed rate actually works, ETF rules by state, and when the default is still cheaper.
US wholesale electricity markets
PJM, ERCOT, NYISO and how marginal pricing reaches the retail bill.
Deregulated states map
Which states have full retail choice for electricity and natural gas.
Taxes on electricity
State sales tax and public-benefit charges on residential electricity.
Taxes on natural gas
State sales tax and federal incentives for gas-to-heat-pump conversions.
New York: ESCO Reset Order
How NY rewrote the rule book on mass-market retail in December 2023.
Illinois: ARES and aggregation
Why IL municipal aggregation usually beats individual ARES enrollment.
Texas energy hub
ERCOT, REPs and the post-Uri retail landscape.
Electricity prices per kWh
EIA-verified state-by-state residential rates, May 2026.
Competition in US energy markets
PURPA, EPAct 1992, FERC Orders 888, 889 and 2000 in plain English.
How liberalization affects you
What retail choice means for residential customers.
Who regulates US energy?
FERC, state PUCs and consumer advocates who supervise competitive suppliers.